The Institute for
Supply Management‘s (ISM) monthly sentiment survey showed an increase in
the proportion of U.S. manufacturers reporting expansion in September. The
“Companies and suppliers continue to deal with an unprecedented number of hurdles to meet increasing demand,” said Timothy Fiore, chair of the Manufacturing Business Survey Committee. “All segments of the manufacturing economy are impacted by record-long raw materials lead times, continued shortages of critical materials, rising commodities prices and difficulties in transporting products. Global pandemic-related issues -- worker absenteeism, short-term shutdowns due to parts shortages, difficulties in filling open positions and overseas supply chain problems -- continue to limit manufacturing growth potential. However, optimistic panel sentiment remains strong, with three positive growth comments for every cautious comment. Panelists are fully focused on supply chain issues in order to respond to the ongoing high levels of demand.”
The services sector -- which accounts for 80% of the economy and 90% of employment -- showed a marginal increase in respondents reporting expansion (+0.2PP, to 61.9%). The most noteworthy changes in the sub-indexes included business activity (+2.2PP) and input prices (+2.1PP).
Of
the industries we track, Wood Products and Ag & Forestry contracted. Respondent
comments included the following:
Paper Products. “We are still amazed by
the labor market. We used to have 100 applicants for an opening; we are now
seeing about 10 -- and often, the applicant does not show for the interview.”
Construction. “Constraints on logistics
from a cost and availability standpoint continue to be an issue.”
Real Estate. “Business volumes remain
remarkably high, although material shortages persist.”
Findings
of IHS Markit‘s
September survey headline results were mixed relative to their ISM counterparts.
Manufacturing: Markit’s headline decelerated while ISM rose; services: Markit and
ISM both edged higher.
Manufacturing. PMI drops to five-month low as production hampered
by ongoing material and labor shortages
Key findings:
*
Output growth slows again as shortages exacerbate capacity issues
* Backlogs of work rise at series record pace
* Output charge inflation accelerates to fastest on record
Services. Business activity expands at slowest pace in nine
months amid softer demand
Key findings:
*
Output growth slows amid softest rise in new business for 13 months
* Backlogs of work increase at series record pace
* Cost pressures intensify
Commentary
by Chris Williamson, Markit’s chief business economist:
Manufacturing. “The US manufacturing sector continues to run hot,
with demand once again racing well ahead of production capacity as firms report
widespread issues with supply chains and the availability of labor.
“The
inability to meet demand amid near-record shortages of inputs and labor not
only led to an unprecedented rise in backlogs of work as orders sat
unfulfilled, but prices charged for those goods leaving the factory gate also
surged higher again in September, rising at a rate exceeding anything seen in
nearly 15 years of survey history.
“With
COVID-19 cases showing signs of having peaked early [in September] both
domestically and globally, some of the supply chain and labor shortage issues
should start to ease, in turn taking some of the pressure off prices. But a dip
in manufacturers’ expectations for the year ahead to the lowest for four months
due to supply worries underscores how production is likely to be adversely
affected by shortages for some time to come.”
Services. “The service sector showed further signs of
struggling amid the COVID-19 Delta wave in September. While business activity
is growing at a rate in line with the long-run average seen prior to the
pandemic, this represents a marked downshifting from the spring and summer
months.
“High
virus case numbers have not only subdued demand for many services, notably
among consumers in the hospitality sector, the pandemic continues to hit the
labor market both in terms of staff absences amid the spread of the virus and
low labor market participation rates meaning it is difficult to fill vacancies.
“With
COVID-19 cases numbers appearing to have peaked early in September, the
situation in terms of demand and labor supply should start to improve as we
head into the fourth quarter; a sentiment supported by business optimism rising
in the service sector to the highest since June and an unprecedented strong
build-up of back orders.”
The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.
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